Reading Momentum and Price Acceleration

Screen Shot 2014-06-17 at 11.12.19

Video Transcription:

Hello traders, welcome to the Price Action Course and the fifth module “order flow.” In this lesson, I’m going to teach you how to read momentum and price acceleration with price action, and this is very important because this is going to help you on your decision making process and it’s also going to help you when you don’t know if you should hold on to a winning trade or you should take profits and just run. And this is important also because it’s going to give you an overall view of what’s going on in the market and whether the bears or the bulls are in control, and how the overall orders are flowing in. So, before we move forward there’s a few things we need to understand. We are going to assess the strength of the momentum by measuring the angle of the directional stream.

Momentum and Acceleration

The steeper the angle, the more strength the move has in it and it is also that the more orders are flowing in on the direction or the site of the directional move or the string. We are going to assess the acceleration or strength of the move by measuring the projection of it and the projection is simply how many pips we have from a string low to a string low on a down move and from string in an up move. We are also going to measure the depth of the directive string to assess the change in the overall order flow.

The deeper the corrective move, the more counter-orders are flowing in on the market. Meaning that, let’s say we are in a down move and the bears are in control, and we have a not so steep angle of the directional string and we have two or three times deeper corrective string than there was before. This means that by-orders are coming in the market and we can expect a rollover in the market. All of this will give us an overall picture of what’s actually happening. Where the big money is positioned itself and whether the overall structure will continue or not. And now let’s go back to the DBPUS Dollar Forward Chart that we analyzed before and let’s continue with the measurements other strings.

Screen Shot 2015-02-24 at 15.34.49

Okay, so this is the same DBPUS Dollar Forward Chart as before. You can see we already have the horizontal lines at each and every single string high and string low and we are going to start by measuring the projections from string low to string low. And the projection will give the overall strength or acceleration of the move. And we’re going to start by grabbing a ruler and going from this string low to this string low. Here you can see that we have a move of 100 pips from this string low to this string low, and this is the projection of the first string. And now we’re going to measure the projection of the second string and you can see that the projection has decreased, meaning that the strength of the overall down move has decreased, which means that the acceleration also has decreased.

But then we have a new string low and you can see that from the third string low to the fourth string low we have an overall move of 285 pips which means that we have almost three times as many pips as we had on the first projection, meaning that the overall move to the downside has accelerated and has gained strength. And last but not least, we are going to measure the projection of the fourth to the fifth string low, and right here we have a projection of 561 pips meaning that since the down move started it has only gained strength or it has only gained acceleration. Which means that in this market right now, the bears are in control and we can expect a continuation of the move to the downside.

Right now we are at the 1.5 hundred level which is a very strong psychological barrier and you can see right here that we tested it already once, but because of the market or the order flow analysis that we are in the middle of we can know for sure that we can actually expect a continuation of the move to the downside just based on the projection of each and every single one of those strings.

Momentum to the Downside

Now, we are going to right now measure the momentum of every string to the downside. Now, we are going to use a line just to measure the actual string. I’m going to thicken up this line so we can see it better and I’m going to change it to a very bright red so we can actually see… well, we have a very visual representation of the momentum. Now, this is the first angle or the angle of the first string. Now, we are going to draw the angle of the second string there and now the angle of the third string. Let me just copy and paste this line and then we’re going to do the same for the fourth and fifth string. This is the fourth string and we are doing the same for the last string to the downside on cable. From this high to this low.

Okay, so let’s start by analyzing the first string to the downside. You can see that the overall structure or the overall momentum of every single one of these strings has decreased, meaning that the steepness of the angle is lesser than the one before. You can see that his angle is steeper than the angle of the second string and the angle of the fourth string and the angle of the fifth string, and this is very interesting because the projections are getting deeper but the momentum is decreasing to the downside. And this is due to the length of every single correcting move. I’m not talking about the depth of the correcting move but I’m talking about the length of the correcting move.

You can see that, for instance, this correcting move was strung to the upside as well as this one but then the third correcting move took awhile to actually finish because we retested the same level twice and the fourth corrective move was even larger because we got stuck in this ridge for awhile. And the momentum to the downside actually on this last string should be even greater because of the strength of the move to the downside. You can see that we even gapped here and we never even attempted to fill this gap and we just continued to move to the downside. So, just by analyzing this we can know for sure that we are going to continue… well, we cannot know for sure but the projections are getting deeper and the momentum to the downside is still there.

I mean even though visually the momentum is decreasing, it’s still a very strong momentum if the angle of the string lows would be at a 30 degree we could assess that the momentum is actually decreasing and then we could look for a rollover in this market, but because the angle is still very steep we know that we have momentum to the downside and because of the projections from string low to string low and because these projections are getting deeper we know that bears are still in control of this market.

Now, we are going to look for short opportunities in cable right now, but that’s not what we are here for and what we are going to do right now, we are going to measure the depth of every single corrective move. Okay? We are going to use a ruler to do that and right here you can see that we corrected 470 pips, then right here we corrected 279 pips, then right here we corrected 314 pips, and then the fourth corrective move is 231 pips. Now, the projections are getting deeper but the corrective move are getting less deep. Now, this tells us that once we have momentum to the downside, bears are in control and whenever we have a corrective move to the upside bulls, or the by-orders that are flowing in this market are not strong enough to rollover to the upside and bulls take control again.

And this is why we are only going to look for short opportunities because this structure is holding and this is what market structure or market flow or order flow analysis is. We are just measuring the depth of every single one of these strings and every single one of these corrections and we are looking at the momentum in every single one of these strings to determine if we are approaching the end of this down move and by the analysis that we just made I can assure you that we can look for a continuation to the downside where we break with this psychological barrier.

Comments are closed.